Securities Lawyer Blog | Victim of Fraud?

TAG | life insurance policy

Oct/11

20

Clyde Benninghoff, Amelia Island, FL, Barred by FINRA

Comments off · Posted by Securities Lawyer in FINRA

Clyde Allen Benninghoff (CRD #18463, Registered Principal, Amelia Island, Florida)
 
submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the
findings, Benninghoff consented to the described sanction and to the entry of findings
that he facilitated securities investments away from his member firm.
 
These findings stated that individuals, who were not customers of Benninghoff’s firm, invested a total of $1,560,531.80 in a secured premium finance plan, which purported to promise a 12 percent return on an accompanying promissory note. The findings also stated that the secured premium finance plan was marketed as an investment that included financing for premiums on life insurance policies. The findings also included that Benninghoff wrote the life insurance policies through his firm’s life insurance company affiliate. FINRA found that the investments were not made through Benninghoff’s firm and were unknown to the firm.
 
Also, FINRA found that Benninghoff did not provide written notice to, or obtain
approval from, his firm prior to facilitating the investments. In addition, FINRA determined that Benninghoff failed to appear for a FINRA on-the-record interview. (FINRA Case #2009019487201)
 
This article was obtained on FINRA’s website listed under ‘Disciplinary Actions’ October, 2011.
 If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com.  We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Oct/11

17

Insured’s “Intent” Is Not an Issue in Pa. Life Settlements Case

Comments off · Posted by Securities Lawyer in FINRA

It was announced that a federal court decision in Pennsylvania has given a win for life settlement investors, deflating carriers’ argument that it is permissible for an insured person to apply for a life settlement with the express intent to sell it to a third party, writes Darla Mercado in an InvestmenNews.com article from October 12, 2011.

This suit filed by Principal Life Insurance Co. against brothers Matthew and Mark DeRose, trustees of their mother’s family trust, Judge Christopher C. Conner of the U.S. District Court for the Middle District of Pennsylvania in Harrisburg ruled that under state statute, insurable interest is determined solely based on the relationship between the insured person and the policy beneficiary.

Finding on “intent” is similar to recent rulings made in Delaware State Supreme Court (PHL Variable Insurance Co. v. Price Dawe 2006 Insurance Trust) and in the New York Court of Appeals (Alice Kramer vs. Phoenix Life Insurance Co., Lincoln Life & Annuity Co. of New York). State laws don’t refer to the “intent of the parties” at the time coverage begins, nor does it require that the transfer of a policy must be in “good faith,” the judge wrote in his Oct. 5 ruling.

Mercado goes on to say that the fact that several courts have already rejected the “intent” argument could shape the outcome of other stranger-originated-life-insurance lawsuits filed by carriers which claim that an insured person applied for a policy with a plan to sell it to an investor in the secondary market, lawyers say.

The article points out that the Principal-DeRose case concerns JoAnn DeRose, who in 2006 applied for three policies with a total of $35 million in death benefits. The JoAnn DeRose Family Trust was the intended owner and beneficiary of the policy, and Ms. DeRose’s sons Matthew and Mark were beneficiaries of the trust, according to court documents. The policies were funded through non-recourse premium financing provided by First Priority Bank, and the $1.51 million loan to cover the premiums was secured by the policies.

The credit approval memorandum from First Priority stated that the principal source of repayment for the loan is “the sale of the three assigned life insurance policies in the secondary market, via a life settlement transaction,” according to court documents.

The InvestmentNews.com article points out that Principal subsequently filed an instant declaratory judgment action against the DeRose brothers, claiming they bought the policies as part of a Stoli scheme and hid their use of non-recourse financing on the application for the policies. The insurer sought to have the policies voided because they lacked insurable interest at inception and the application documents had material misrepresentations. Principal also sought to retain the premiums to offset its expenses.

Then Judge Conner set aside the DeRoses’ alleged intent to sell the policies in the secondary market, and instead based insurable interest on the fact that Ms. DeRose’s sons were the beneficiaries of the trust, which in turn was the beneficiary of the insurance policies. Indeed, a parent-child relationship forms the basis for insurable interest, he wrote.

Judge Conner is allowing Principal to move forward with claims aiming to void the policies based on misrepresentations on the application. He is also permitting the carrier to seek retention of the premiums to offset the costs related to issuing the policies.

“While we can’t comment on pending litigation, The Principal does not support any form of investor-initiated life insurance where individuals or investors purchase insurance solely to bet on the early demise of an insured,” spokeswoman Joelle Kirchoff wrote in an e-mail. “We closely monitor our business for these types of policies. In policies where investor-initiated life insurance is suspected, lawsuits have been filed.”

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Oct/11

10

Life Settlements Fraud Get Long Jail Sentences For Two Scammers

Comments off · Posted by Securities Lawyer in FINRA

Two men from Houston, Texas, have been sentenced to spend more than 45 years in prison for their role in a massive life settlements fraud scheme writes Darla Mercado in an October 7, 2011, article in InvestmentNews.com.

Christian Allmendinger, the co-founder and vice president of A&O Resource Management Ltd., and Adley H. Abdulwahab, a hedge fund manager and part owner of A&O, were sentenced to 45 years and 60 years in federal prison, respectively, on Sept. 27 and 28 in the U.S. District Court in Richmond, Va. The charges against the two also includes conspiracy to commit money laundering, securities fraud and mail fraud.

This case dates back to 2004, when Mr. Allmendinger and another man founded A&O, according to the U.S. attorney’s office in Richmond and the Justice Department.

Ms. Mercado writes that the firm offered individual investors whole and fractionalized interests in so-called bonded life settlements, which were supposedly backed against longevity risk with a reinsurance bond. These bonds were positioned as fixed-maturity investments with a term of four to seven years and marketed as providing a guaranteed minimum compounded annual rate of return of 10% to 12%.

As many as 800 investors, most of them elderly, bought up the investments, and A&O raked in some $100 million in clients’ dollars.

It was reported in the InvestmentNews.com article that Mr. Abdulwahab, who eventually became a partial owner of A&O, entered the picture when his marketing company, CA Houston Investment Center, or HIC, and independent insurance agents who weren’t securities licensed began selling the investments, according to the suit. A&O paid HIC and the agents a commission of 10% of each bonded life settlement purchase, authorities said.

Concerned that the firm was offering unregistered securities, securities and insurance regulators became suspicious in 2006. Federal enforcement agencies said the men set up a phony series of sales of A&O itself in 2007 to place greater distance between themselves and regulators’ scrutiny of the firm. The transactions ended Mr. Allmendinger’s and Mr. Abdulwahab’s ownership interests in A&O, according to law enforcement agencies.

It was reported that A&O went into bankruptcy in September 2009, due to failure to pay down the premiums on its underlying insurance policies.

Mr. Abdulwahab filed an appeal of the sentence last week, and Mr. Allmendinger also will appeal the sentence.

If you or a family member have become alleged victims of life settlement fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Sep/11

1

Texas Reps Could Lose Securities Licenses for Selling Life Settlement Notes

Comments off · Posted by Securities Lawyer in FINRA

In an InvestmentNews.com article, Darla Mercado writes that two registered representatives with Planmember Securities Corp. could lose their securities licenses in Texas and face fines of $100,000 each for the improper sale of life settlement notes.

The brokers, Jimmy Wayne Freeman Jr. and Kris Bradford Rhoden, were due to appear at the State Office of Administrative Hearings on Aug. 4 for a proceeding that will determine whether the men lose their securities registrations and have to pay the fines, according to the Texas State Securities Board.

The article says that the state regulators claim that between June 2008 and February 2009, Mr. Freeman and Mr. Rhoden sold note agreements that were supposedly backed by life insurance policies and guaranteed a 10% simple-interest return for five years.

The two reps allegedly also sold a so-called Immediate Income Investment Plan, which involved a five-year note that was purportedly backed by life insurance policies, plus a five-year, fixed biweekly income account.

The InvestmentNews.com article points out that both products were issued by National Life Settlements LLC, a now-defunct firm that was shut down by Texas securities cops in 2009 after selling $30 million in unregistered investments — phony promissory notes that were supposedly backed by life settlements — to teachers and state retirees.

Ms. Mercado writes that the men also failed to get permission from Planmember to perform an outside business activity before receiving an undisclosed amount in commissions for selling away, according to the brokers’ hearing notices. State regulators also charge that when Mr. Freeman and Mr. Rhoden sold the life settlement notes, they told Planmember on their compliance questionnaire that they did not offer or sell such products.

Mr. Freeman and Mr. Rhoden allegedly failed to comply with Planmember’s supervisory procedures, which barred private-securities transactions and required them to get prior written approval from the broker-dealer before participating in a securities transaction outside of the regular course of business, Texas securities regulators claim.

Finally, it was reported that the men failed to make a timely update of their U-4 forms to show that they were marketing the life settlement notes, and both used their personal e-mail accounts to communicate with Planmember clients about the investments, according to the hearing notices.

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Aug/11

22

Should ‘Life Settlements’ be Defined as ‘Securities?’

Comments off · Posted by Securities Lawyer in FINRA

It was reported that on July 22, 2011, the Securities and Exchange Commission (SEC) released a report from its Life Settlements Task Force which recommended that the SEC urge Congress to amend the federal securities laws to include life settlements as securities. The SEC report also recommended that the SEC monitor brokers and providers to assure that legal standards of conduct are being met.

This report raises a key policy question about life settlements, in which a policyholder sells the policy to someone else, who then assumes responsibility for paying the premiums. In exchange, the insured person receives a lump-sum payment that exceeds the policy’s cash surrender value but is less than the expected payout in the event of death.

The SEC proposal to define life settlements as securities is both wise public policy and the only solution that would give all participants the confidence to create a sustainable secondary market for life policies.

This 43-page report and its 40 pages of exhibits are the product of a joint task force that conducted an extensive review of existing law, litigation and enforcement actions. The task force also interviewed all major market participants, making the study the most comprehensive look at this complex issue to date.

Securities Lawyer, Lars Soreide, feels that ‘life settlements’ should be considered ‘securities.’ Lars Soreide says, “It is a gray area when a financial advisor takes off his securities hat and puts on his insurance hat to sell you a life settlement, which can leave many customers confused as to whether they are dealing with  insurance products or securities. Furthermore, by not classifying life settlements as securities it makes it more difficult on investors, who were burned by their advisors, to pursue legal action. By not classifying life settlements as securities, investors may not be able to pursue these claims in the Financial Industry Regulatory Authority (FINRA) forum and have to sue in state or federal court which is a longer, more expensive process, unless all parties agree to arbitrate before FINRA.”

The courts and regulators have found investments in life settlements to be securities. The SEC report, in fact, points to 25 SEC enforcement actions and 13 enforcement actions brought by the Financial Industry Regulatory Authority Inc. that rest on this conclusion, as well as numerous other cases.

If the definition of a security under the securities laws were amended specifically to include life settlements under the NASAA model the definition would preserve a place for state regulation of legitimate life settlements. At the same time, it would close the door to many abusive transactions, including almost all forms of stranger-originated life insurance.

If life settlements were defined as securities, many of the abusive practices that have spawned more than 300 lawsuits and loss of much personal wealth would have been avoided. Few of these litigated cases involved variable policies, which come under the purview of securities regulation and demonstrate the relative effectiveness of Finra regulation and enforcement.

The SEC proposal to define life settlements as securities may be just what is needed to boost investors’ confidence and encourage them to buy, which would make the market more liquid.

Securities regulation would create full, fair and adequate disclosure of all material facts, and the discipline of Finra oversight would afford policyholders consistent protection in all U.S. jurisdictions. This would make it harder for abusers to sidestep the law.

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Aug/11

4

What You Should Know About Life Insurance Contestibilty

Comments off · Posted by Securities Lawyer in FINRA

There are large sums of money involved with life insurance and the industry needs to protect against people setting up fraudulent policies and transactions. There are three  concepts that must be understood as they relate to a senior life settlement. They are; Insurable Interest,  Rescission, and Contestability,.

Insurable Interest and Life Settlements

“Insurable interest” is deals with the legal legitimacy of a life insurance policy and its beneficiary. The intention of life insurance is to provide a financial payment to the beneficiary after the death of the insured. The beneficiaries are typically the family, descendents, heirs, employers, businesses, business partners and charities of the insured. These are legitimate beneficiaries that qualify for “Good Insurable Interest”.

For a life insurance policy to have legitimate good insurable interest, it is required that at the time of purchase, the intent was to benefit a legitimate beneficiary. If it can be shown that a policy was bought with the sole intention of making a life settlement then this would be considered “bad insurable Interest” or a “lack of insurable interest”. In this situation, the policy was issued on fraudulent grounds and the applicant was acting as an agent on behalf of an investor and NOT for the reasons listed on the application form. This situation has the potential for a recession at any time. This could also lead to a contested death claim at any time well beyond the 2 years of contestability.

Contestability Period and Life Settlements

  • The contestability period is the first two years a new life policy is in force. During this two-year period;
    • A death claim may be denied or “contested” due to a fraud on the life insurance application or the suicide of the insured.
    • The life settlement value of a policy is typically higher after the contestability period. 
    • An overwhelming majority of life settlement buyers will not purchase policies during the contestability period.
    • Life insurance companies don’t like life settlements but are particularly averse to life settlement transactions during the contestability period.

    Seniors should be aware that life insurance companies are not proponents of  life settlements. The fact is that life insurance companies profit greatly when a policy lapses without them having to pay a death benefit. When a policy is sold to an investor in a life settlement, it becomes a virtual certainty that the policy premiums will be paid and the death benefit will have to be honored. Also, professional investors pay the absolute minimum premiums until the anticipated death of the insured. These factors lower life insurance company profits.

    Seniors have every right to sell their life insurance policies that have been acquired legitimately and the life settlement market provides them a profitable avenue to do that. However, seniors cannot just buy life insurance with the intention of selling it in a life settlement to make money. To do so may be fraudulent because life insurance applications all ask the intent of the buyer.

     

    Rescission of Life Insurance and Life Settlements

    A rescission is a cancellation of the life insurance contract by the issuing life insurance company. If during the two year contestability period the life insurance company suspects fraud it can rescind the life insurance policy. If the fraud is related to a lack of insurable interest at the time the policy was issued, the recession can take place at any time. Obviously, life settlement investors will only purchase policies that they believe are in good standing and without any fraud in the origination.

    In order to rescind a policy the following conditions need to be met.

    • No death has occurred; i.e, the insured is still alive.
    • The company believes a fraud or misrepresentation was perpetrated on the application.
      • Medical information misstated.
      • Financial information misstated.
      • A misstatement of purpose that indicates bad insurable interest.

     

Arranging a life settlement in advance as part of buying a life insurance policy may lead to fraudulent statements on the life insurance application which in turn may lead to a finding of bad insurable interest which in turn may lead to policy rescission and/or a contested death claim.

Each state is responsible for creating and enforcing insurance laws and regulations. As a result the laws differ state by state and it is important to use experienced life settlement  attorneys to ensure that all laws are being adhered to. Florida has some of the strongest life settlement laws: It is a felony to solicit life insurance for the purposes of creating a life settlement.

Life settlements are a complex area of law and one of the key reasons that seniors need experienced legal professionals. 
 

  • In most states insurable interest must exist only at the time a policy is issued. Afterwards, any owner and beneficiary are just as legitimate as the original beneficiary.
  • Bad insurable interest at the time a policy is issued is a potential reason for a CONTESTED DEATH CLAIM or a policy RESCISSION at any time.
  • A fraudulent statement on the initial life insurance application related to insurable interest could lead to a policy rescission or contested death claim many years AFTER the contestability period has gone by.

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

 

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